With the National Employment Savings Trust’s (NEST) recent announcement that 170 employers are now participating in its scheme, it seems that even the biggest employers are looking for ways of reducing costs and the burden of pensions administration. Many of our clients have asked us whether the administrative burden would be reduced if they enrolled everybody and bypassed the requirement to assess workers. So, is it really simpler to enrol everyone?
The requirements for auto-enrolment
In order to comply with statutory duties under auto-enrolment, your business has to assess and categorise your workforce into eligible jobholders, non-eligible jobholders and entitled workers. Only the former have to be automatically enrolled; the latter two groups can elect to opt in.
Some employers have already made the decision to automatically enrol all their workers, or a sub-category of workers that aren’t required to be enrolled under statute. On the face of it, this could be much simpler option. There’s no assessment and no opt in forms, which could potentially cause confusion among members regarding which category they come under.
Overcoming the main challenges
But before you make this decision, you’ll need to be aware of the potential issues which may arise.
1. Is a contractual amendment required?
The Pensions Act 2008 specifically allows employers to deduct pensions contributions directly from employee pay. As an employer, you’re permitted, and indeed must, enrol all eligible workers without any consent or action on the part of the worker. This permission may also extend to those members that have to be enrolled. Enrolling workers outside of these requirements will require permission from the workers. This is known as contractually enrolling workers. Although it’s not uncommon it may require an amendment to that worker's contract.
2. Different refund periods
If your workers are contractually enrolled, there may be different periods within which the worker can leave and receive refunds. One will be the statutory ‘cooling off’ period and one is the ‘opt out’ period under auto-enrolment legislation. The systems would need to be able to recognise who has been contractually enrolled and the period within which they can cease membership. This could cause problems by creating a two-tiered work force. So your systems will need to be clearly defined regarding which route a worker has enrolled under.
3. Different communications
There may be different communications requirements or different messages from the business for workers in the different categories (i.e. one letter to those being contractually enrolled and one to those that may have exercised a right under auto-enrolment). Communications are often run by the provider, so you’ll need to check whether the provider can offer bespoke letters.
4. Bespoke systems
If, as an employer, you’re using a group personal pension (GPP), you’ll need to check whether the provider can offer specific amendments to the basic platform.
5. Actions on opt-out
Individuals that opt out following statutory auto-enrolment don’t need to be re-enrolled until the next applicable re-enrolment date. Those that were contractually enrolled may then need to be enrolled into a compliant scheme when they next become eligible. This may result in the individual having to opt out again after a short period. In addition, ceasing membership isn’t the same as opting out under auto-enrolment, so an individual could yo-yo in and out of the scheme by ceasing to be a member, then opting in again under auto-enrolment. Again, a bespoke system will be required for monitoring this.
6. Fixed or enhanced protection?
Enrolling an individual into a pension scheme may jeopardise their fixed or enhanced protection. When an individual opts out under auto-enrolment, the law treats them as though they were never a member of the scheme. But if an individual is contractually enrolled they may be treated as having made a contribution and will therefore lose their protection. It may be possible to avoid this issue by amending the rules of your occupational pension scheme.
Coming up with the right solutions
None of these problems are insurmountable. The auto-enrolment experts in PwC Legal’s Pensions team can work with you, alongside the experts from PwC LLP, to help you streamline the right process for your business needs. This will effectively align the two processes as closely as possible to avoid unnecessary complications.